Cotton Prices Bounce from Lows: Dollar Weakness and Dip-Buying Drive Recovery, but Weak Export Demand Caps Upside

The US dollar index ended its three-day winning streak, giving cotton futures a breather. On June 25, the ICE December cotton contract, after hitting a two-week low of 76.09 cents per pound earlier in the session, rebounded to close at 76.97 cents, up 0.71 cents or 0.93%. This recovery was driven by a combination of macroeconomic and speculative factors, but underlying demand weakness revealed by industry data is casting a shadow over the outlook.

Weaker Dollar and Higher Oil Prices: Two Short-Term Catalysts

The dollar index fell on Thursday after a series of US economic data, including inflation figures, dampened expectations of a Federal Reserve rate hike this year. A weaker dollar makes dollar-denominated cotton cheaper for overseas buyers, theoretically supporting exports. Meanwhile, oil prices rose over 2% as geopolitical tensions in the Middle East escalated—a cargo vessel was attacked off Oman, prompting the International Maritime Organization to suspend the evacuation of ships stranded in the Strait of Hormuz. Higher oil prices raise the cost of polyester fiber, indirectly boosting cotton's competitiveness as a substitute.

These two factors combined to create a window for short-term sentiment repair. StoneX senior vice president Bailey McHenry noted that after the previous day's sharp sell-off, the market saw technical repositioning, with speculative funds finding support around 76 cents. This suggests that 76 cents has become a key psychological battleground for bulls and bears.

Export Data Raises Red Flags: Demand Not Following the Rebound

However, the sustainability of this sentiment-driven rally hinges on fundamental supply-demand support. The USDA's weekly export sales report sent the opposite signal: for the week ending June 18, current-year US upland cotton net sales stood at 83,864 bales, plunging 53% week-on-week and 61% below the prior four-week average. Next-year net sales were 67,089 bales. Although shipments rose 20% week-on-week, shipments to China were only 12,248 bales.

This data suggests that despite the price drop to a multi-week low, overseas buyers have not significantly increased their purchasing appetite. For domestic textile clusters like Shengze, Nantong, and Keqiao, weakening external demand is transmitting pressure from raw materials to downstream products. If cotton prices hold at current levels while yarn and fabric margins cannot keep pace, mills' profitability will remain squeezed.

Outlook: Consolidation Likely, Watch 76-Cent Support

In summary, the cotton market is in a tug-of-war. A weaker dollar and higher oil prices provide short-term support, but the substantial decline in export demand acts as a ceiling. Historically, June-July is the critical growing period for Northern Hemisphere cotton, and weather factors could catalyze the next move. But under the current data framework, the demand side lacks momentum for active restocking.

For textile supply chain participants—procurement managers and exporters—this calls for more disciplined timing.

For Buyers - Consider phased purchases around the 76-cent level, but avoid large single orders to guard against a potential retest of lows. - Monitor speculative net long positions in ICE commitment of traders reports; if speculators continue to reduce longs, the rally's durability is questionable. - Lock in forward basis contracts with mills to hedge price risk via the futures market.

For Exporters - When quoting overseas orders, factor in a cotton price range of 75-78 cents and offer floating pricing clauses to clients. - Track the Middle East situation's impact on oil prices closely, as the polyester-cotton price linkage is strengthening. - Use weekly export sales data as a reference for order intake: two consecutive weeks of rising sales are a genuine signal of demand recovery.